Auction buyers relying on condition reports for online sales

The coronavirus pandemic dramatically altered the automotive ecosystem this spring as plants shut down, many dealerships temporarily closed their showrooms and the two largest U.S. wholesale auction companies made a near-overnight switch to digital sales.

Since the height of the virus crisis in March and April, manufacturing has restarted and dealerships have reopened.

But Cox Automotive's Manheim and KAR Global's ADESA auction units continue to sell mostly via digital. Even where physical auctions have resumed, buyers have gravitated to buying wholesale cars and trucks online.

With the shift, condition reports on vehicles — the documentation many buyers rely on to make their bidding decisions — have become all the more crucial. And those buyers, along with some auction executives, say the reports must improve and become more reliable.

"We have to be better at condition reports, which we're working really hard at, and we're investing in," Cox Automotive CEO Sandy Schwartz said in June. "We have to be better at representation of cars, which I feel we've done over last year and we're working really hard at today."

The improvements need to include better pictures and descriptions of the cars, Schwartz said, as well as better guarantees that would allow buyers, when they purchase vehicles that prove to be not what they thought, to be able "to unravel that sale."

KAR also is underscoring the importance of good condition reports.

"It's something the entire industry has always done, but it's completely changed with this transformation to digital marketplaces," said Tom Fisher, KAR's executive vice president and chief digital officer.

To that end, KAR and Manheim are investing millions of dollars to make the digital vehicle-wholesaling process more transparent. With improved information on the vehicles comes greater confidence for potential buyers — and higher sales conversion rates.

KAR invested $100 million-plus in artificial intelligence, better imaging and other enhanced condition-report technology last year.

Cox Automotive said it plans to spend $40 million over the next two years to update technology related to its condition reports.

Some of these upgrades had been in the works while others — both technological and operational — were implemented in the wake of the coronavirus outbreak and the subsequent switch to digital auctions in mid-March.

Following that switch, KAR moved to unify its approximately 1,500 vehicle inspectors in a common Center for Excellence unit. Some inspectors have been stationed at physical auctions while others were working in the field for KAR's mobile auction unit TradeRev.

The goal of coordinating their activities through the new center is to eliminate some of the natural subjectivity from inspector to inspector and to create a more uniform process for inspections and condition reports.

"The biggest piece of feedback that we've gotten from our buyers in particular is that the inspections are inconsistent," Fisher said. "And so we've made a massive technology investment into that platform to drive that consistency."

Improving consistency is a key goal for Manheim, too. It has increased its inspectors' training regimen to ensure a more uniform process, quadrupled the number of audits it does on inspectors' reports and created a condition-report advisory board to get direct feedback from customers.

One of Manheim's immediate moves in the aftermath of the switch to all-digital sales was to increase the number of images in condition reports for at-auction, dealer-consignment vehicles, upping the count to 18 photos — depending on vehicle size — from the previous seven.

Manheim has had a more-involved inspection and condition-report process for its Manheim Express mobile trading platform. The Manheim Express report — geared to vehicles being off-site — includes video footage, audio of engine noises, 360-degree images of the exterior and interior, an undercarriage survey for rust and a scan of the vehicle's OBD-II, or on-board diagnostic, port.

That expanded condition report is gaining traction with dealer-consigners at traditional auctions, especially for older vehicles.

"We're really developing what I call segment-specific condition reports that meet the needs of different buyers at different stages," said Zach Hallowell, vice president of Manheim Digital Marketplace and RMS Automotive.

Some of the upgrades the two auction giants have been implementing are things digital rival ACV Auctions has been offering out of necessity.

ACV has been an all-digital marketplace since its founding in 2014. The company, which sells 40,000 vehicles per month, has developed products such as Virtual Lift, a tool that provides images of vehicle undercarriages, and Audio Motor Profile, which provides sound clips of a vehicle's running engine. ACV's 700 inspectors also use paint meters, tire-depth readers and OBD-II scanners.

"Really what the virus has done is accelerated the adoption to digital, and what that does is you now can't debate whether you're going to show more data on the car or not," said ACV Auctions CEO George Chamoun. "Digital requires trust and transparency. Digital requires a trusted condition report. So those two things kind of come together."

Dealers sometimes report horror stories on social media about vehicles they bought at wholesale that arrived with major condition issues not represented in the condition report. Examples range from dirty interiors to missing parts to prominent scratches or dings.

While buyers feel vehicles are sometimes misrepresented, some dealers who purchased via digital auctions well before COVID-19 became part of the American vernacular say they are comfortable with the process.

Tasca Automotive Group has been buying vehicles online for several years, said David Tasca, the Rhode Island dealership group's general manager. The key to remote wholesale buying, he said, is being able to effectively arbitrate a disputed purchase, if needed, and generally to not overthink the process.

Condition reports make remote buying easier, Tasca said, as they often list factors that buyers may not be able to discover if they hadn't inspected the vehicle beforehand — such as a vehicle's interior odor.

"You can't tell me if you were standing in the lane that you opened the door in every car and smelled it as it was driving through the lane," Tasca said, adding, "The condition report tells you in two seconds."

John Brasher, executive director of the ServNet group of independent auctions, said its auctions have focused on training inspectors to be consistent while also improving photography. Some ServNet auctions have begun using the companies SpinCar and Black Widow for 360-degree vehicle imagery, while others are upgrading the quality of their vehicle photos, Brasher said.

"A good-quality photograph in some cases is probably more valuable than a condition report," he said.

ServNet auctions have not seen a rise in arbitration claims as digital transactions have grown, Brasher said.

ACV and Manheim reported the same. But that could be in part because of a used-vehicle market that has been red hot, with demand for inventory driving wholesale prices to record levels.

"Whenever the market's really hot and cars are tough to come by, arbitrations drop down to almost nothing," he said. As to whether lower arbitration rates will last well into the increasingly digital future, he said, "The jury's still out."